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You moved abroad and filed your federal taxes. You used the Foreign Earned Income Exclusion. You owed minimal federal tax. You think you have done your part. Then you get a letter from a state, say California or New York. They want state taxes on your foreign income.
This catches thousands of expats off-guard every year. They assume moving abroad ends all US tax obligations. They handle federal taxes but forget about states. Or they think they broke ties with their home state. But that state disagrees.
Some states never let go of your taxes. They use "domicile" rules that follow you around the world. California is one of the states that does this. So are New York, Virginia, South Carolina, and New Mexico. These "sticky states" argue you're still a resident even after years abroad. And they want their cut of your foreign earnings.
Most expats can completely eliminate state tax obligations with the right steps. You just need to understand the rules, properly sever ties, and document everything. Some states make it easy. Others make it hard. This guide shows you exactly what to do with help from professional expat tax services.
You'll learn which states have income tax, which states are tricky, how to break residency, what forms to file, and how to stay compliant. Whether you left Texas (easy) or California (hard), this guide has the answers you need.
What is state tax liability for Americans living abroad?
Unlike federal taxes that apply to all US citizens regardless of location, state taxes generally apply only to residents or those with income-producing connections to the state. It depends on whether you maintain a "domicile" or tax residency in a state to get taxed. Here's what they mean:
Domicile is your permanent home—the place you intend to return to eventually. You can only have one domicile at a time, and it doesn't change just because you move abroad temporarily. States presume you remain domiciled there until you take affirmative steps to establish domicile elsewhere.
Residency is where you physically live. Most states tax residents on all income regardless of source. Some states also tax non-residents on income earned within the state (like rental income from property in that state).
States can generally tax you if:
- You maintain domicile in that state (even while living abroad)
- You're a statutory resident (spent significant time in state during year, typically 183+ days)
- You have state-source income (rental property, business operations in state)
- You work remotely for a state employer while abroad (some states tax this)
Understanding state residency for tax purposes is critical before consulting an expat tax advisor about your specific situation.
Which states tax Americans living abroad?
State tax treatment of expats varies dramatically. Understanding your former state's rules is critical to determining your obligations and whether you need specialized expat tax services.
States with no income tax
If your last US state of residence was one of these nine states, you have no state income tax obligation:
Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, Wyoming
These states don't tax wages or earned income, making expat tax obligations simple. However, you may still owe taxes on specific income like rental property in other states.
Note: New Hampshire taxes interest and dividend income (but is phasing this out—fully eliminated by 2025). Tennessee eliminated its Hall Tax on investment income in 2021.
States with aggressive expat taxation
Several states are notorious for pursuing former residents who move abroad. These expat state taxes issues require careful attention:
California: The most aggressive state for taxing expats. California uses a "closest connections" test and presumes you remain a California resident if you maintain significant ties. Property ownership, family in California, California driver's license, or business interests can trigger continued taxation. California taxes all worldwide income of residents, including foreign-earned income.
Virginia: Continues taxing domiciliaries even after moving abroad. Requires affirmative steps to establish non-residency. Maintains detailed rules about what constitutes changing domicile.
South Carolina: Taxes residents on all income regardless of source. Requires clear establishment of domicile elsewhere. Has challenged expats who maintained property or family in the state.
New Mexico: Uses domicile-based taxation. Can continue taxing expats who maintain connections to the state. Requires filing declaration of non-residency.
States with moderate expat taxation
Most other states follow more traditional residency rules:
New York: Taxes residents and statutory residents (183+ days in state). Has detailed rules about maintaining a "permanent place of abode" in New York. Generally doesn't pursue expats who clearly establish residency abroad unless they maintain significant New York connections.
Massachusetts: Taxes residents on worldwide income. Uses both domicile test and 183-day statutory residency test. Requires part-year resident returns when moving mid-year.
Other states: Generally tax residents on all income and non-residents only on income sourced to that state. Most don't aggressively pursue expats who establish foreign residency, but maintaining property or significant connections can trigger taxation.
How do I prove I'm no longer a state resident?
Establishing non-residency requires affirmative action, not just moving abroad. States presume you remain domiciled until you prove otherwise. An experienced expat tax advisor can guide you through these critical steps to declare non-residency:
File a declaration of non-residency: Many states provide forms to formally declare you've changed domicile. File this with your state tax authority when you move abroad. Include documentation of your foreign residence, employment, and intent to remain abroad.
Change your driver's license: Obtain a driver's license from your new country of residence or from a no-income-tax state if you maintain a US address. Surrender your old state license officially.
Update voter registration: Register to vote at your new location or cancel registration in your former state. Many states view active voter registration as evidence of continued domicile.
Change your mailing address: Use a foreign address or address in a no-income-tax state for all correspondence. Avoid using your former state address as primary contact.
Close or relocate bank accounts: Open bank accounts in your new country or in no-income-tax states. Close accounts in your former state or change to non-resident status.
Update professional licenses: Change professional licenses to foreign addresses or let them lapse if not needed. Active licenses in former states can indicate continued domicile.
File part-year resident returns: For the year you leave, file a part-year resident return showing the date you established a domicile elsewhere. Report income earned while a resident and income earned after changing domicile.
Document your intent: Keep records showing permanent move: employment contract abroad, long-term foreign lease, foreign residence permit, enrollment of children in foreign schools, sale of former home.
Don't maintain these connections to avoid problems:
- Own residential property in your former state (especially primary residence)
- Keep spouse or dependent children living in the state
- Maintain professional practice or business operations in state
- Return to state for extended periods (more than 30-60 days)
- Maintain club memberships, gym memberships, or other regular commitments
- Keep state-based health insurance or other state-specific services
- Use former state address for any official purposes
Owning rental property in your former state usually won't prevent you from establishing non-residency, but owning a home you could live in (second home, family home) often triggers presumption of continued domicile. If you keep property, clearly document it's investment property only.
What state tax forms do expats need to file?
If you maintain state tax obligations, you'll need specific forms depending on your situation. Many expats work with expat tax services to ensure proper form selection and completion.
|
State |
Common Forms |
Notes |
|
California |
Form 540 (resident), Form 540NR (non-resident), Form 590 (declaration) |
Part-year return uses Form 540NR with Schedule CA |
|
New York |
Form IT-201 (resident), Form IT-203 (part-year/non-resident) |
IT-203 includes residency allocation schedule |
|
Virginia |
Form 760 (resident), Form 760PY (part-year) |
Must file Part-Year return when changing residency |
|
Massachusetts |
Form 1 (resident), Form 1-NR/PY (non-resident/part-year) |
Separate forms for resident vs. non-resident status |
Each state has unique forms and requirements. You must check your specific state's tax authority website for current forms and instructions.
When are state tax returns due for expats?
Most states follow federal deadlines, but there are important differences for expats handling expat tax filing.
April 15: Most states use the same deadline as federal returns. A few states have different deadlines:
- Delaware: April 30
- Virginia: May 1
- Louisiana: May 15
- Iowa: April 30
Do expats get automatic extensions for state returns?
The automatic two-month extension to June 16 for federal returns does NOT automatically apply to state returns. This is one of the most commonly overlooked expat tax issues.
State extension requirements:
- Most states require you to file a separate state extension request
- State extensions typically must be filed by the original state deadline (usually April 15)
- Most states grant 6-month extensions (to October 15)
- Some states automatically extend if you file federal extension (Form 4868), but not all
- Payment of estimated tax may be required with extension request
As a safe approach, you must file both federal Form 4868 and your state's extension form by April 15 if you need more time. Don't assume the federal extension covers state obligations.
Like federal taxes, state extensions extend filing deadlines but not payment deadlines. If you owe state tax, payment is generally due by the original deadline (April 15 for most states) to avoid interest and penalties.
Estimated tax payments: If you expect to owe state tax, you may need to make quarterly estimated payments. Most states require estimated payments if you expect to owe $1,000 or more in state tax for the year.
How do states treat Foreign Earned Income Exclusion?
This is where state taxes get complicated for expats. Federal tax law allows you to exclude up to $130,000 of foreign-earned income (FEIE), but states handle this differently. Professional expat tax services help navigate these complex state-specific rules.
Three approaches states take
States that allow FEIE (most favorable): These states start with federal adjusted gross income (AGI) after FEIE has been applied. If you excluded $130,000 federally, it's also excluded for state purposes.
States: Alabama, Arizona, Georgia, Hawaii, Massachusetts, New York, Oregon, Pennsylvania, others
States that don't allow FEIE (least favorable): These states require you to "add back" foreign-earned income excluded on federal return. You must pay state tax on income excluded federally.
States: California, Montana, North Dakota, New Jersey, others
States with partial recognition: Some states partially recognize FEIE or have special rules. Check your state's specific treatment.
Do states allow Foreign Tax Credit?
Most states allow some form of Foreign Tax Credit to prevent double taxation, but it's usually more limited than the federal FTC.
Common state FTC limitations:
- Credit limited to state tax on foreign-source income
- May not allow credit for all foreign taxes that qualify federally
- Some states cap FTC at specific percentage
- Credit often can't reduce tax below zero (no carryforward in some states)
States with good FTC provisions: New York, Massachusetts, Oregon generally allow reasonable FTC.
States with limited FTC: California has complex FTC rules with significant limitations.
Check your state's specific FTC rules and complete state-specific foreign tax credit forms if claiming this credit.
What if I work remotely for a US company while abroad?
Remote work creates complex state tax issues, especially if your employer is in a different state than your former residence. Working with an expat tax advisor becomes essential for remote workers navigating these rules.
Several states have "convenience of employer" rules that can tax you even while living abroad if you work remotely for an employer based in that state.
States with convenience rules: New York, Delaware, Nebraska, Pennsylvania, New Jersey (and others)
How it works: If you work remotely for a New York employer while living in London, New York may claim the right to tax that income, arguing you're working remotely for your convenience, not the employer's necessity. Even though you're abroad, New York may tax your wages.
Usually if the employer requires you to work abroad (not just permits it), the convenience rule doesn't apply. Get written documentation from employers about requirements to work abroad.
Employer withholding issues you may face
US employers may continue withholding state taxes for their state even after you move abroad. This creates issues if you're not actually liable for that state's tax. Here are a few things you can do to avoid issues:
- Update your W-4 with employer to stop state withholding
- Provide documentation of foreign residence
- File state return to claim refund of withheld taxes if you're not liable
- May need to file non-resident return showing allocation of income
If you move abroad mid-year and worked in multiple states before leaving, you may need to file:
- Part-year resident return for former state of residence
- Non-resident returns for states where you worked but weren't resident
- Allocate income by time worked in each location
- Claim credits for taxes paid to multiple states
What happens if I ignore state tax obligations?
States have increasingly aggressive collection mechanisms and can pursue expats for years of back taxes. Understanding state tax residency obligations prevents costly penalties.
Failure to file penalty: Typically 5% of tax owed per month, up to 25% maximum (similar to federal)
Failure to pay penalty: Usually 0.5% per month, up to 25% maximum
Interest: Compounds daily on unpaid tax and penalties. State interest rates range from 3-10% annually depending on state.
Combined impact: A $5,000 state tax bill can grow to $7,000+ within two years with penalties and interest.
How states find non-filers
States receive information from the IRS about federal returns filed. If you file a federal return showing foreign address but don't file a state return, your former state may notice.
They match W-2s, 1099s, and other income documents to filed returns. If income documents show your SSN but no return filed, the state investigates.
States also track property ownership. If you own property in state but don't file a return, they may send an inquiry. Professional license renewals, driver's license renewals, voter registration—all create records that may trigger state inquiry.
Key Strategies to Minimize State Taxes for Expats
Several strategies can reduce or eliminate state tax obligations for Americans living abroad. Consulting professional expat tax services ensures you implement these strategies correctly.
Strategy 1: Establish Domicile in a No-Income-Tax State
Before or after moving abroad, establish a domicile in Florida, Texas, Nevada, Wyoming, or South Dakota. Obtain a state driver's license, register to vote, rent or own property temporarily, open bank accounts, and file a declaration of domicile. Spend 2-3 months establishing clear intent to make this your permanent home, then move abroad.
Pro Tip: If moving from California or New York, spending 2-3 months establishing a Florida domicile first can save $3,000-8,000+ annually in state taxes. This investment pays off quickly if you maintain any US income sources.
Strategy 2: Completely Sever Ties to Your Former State
If you can't establish a domicile elsewhere, cut all connections to your former state. Sell residential property (or document as investment only), cancel driver's license and voter registration, close bank accounts, terminate professional licenses, and file a final part-year resident return clearly establishing your departure date and non-residency declaration.
Pro Tip: Document every step with dated evidence—keep copies of cancellations, changes, and sale documents. Create a "domicile change file" to defend your position if your former state challenges non-residency. Many expats benefit from working with an expat tax advisor to build this documentation properly.
Strategy 3: Document Foreign Residence Thoroughly
Create comprehensive records proving permanent foreign residence. Maintain documentation including long-term foreign lease (1+ years), foreign employment contract, residence permit, children enrolled in foreign schools, foreign bank accounts, foreign driver's license, and evidence of "putting down roots" abroad like gym memberships or professional registrations.
Pro Tip: Take photos and keep digital copies of all foreign residence evidence. If audited 2-3 years later, you'll need to recreate your situation. Many expats win disputes by overwhelming states with evidence of permanent foreign life.
Strategy 4: Time Your Move Strategically
Move abroad early in the tax year (January vs. December) to minimize part-year resident income subject to state tax. Coordinate your move with employment changes to clearly establish a break from your former state employer, making it easier to demonstrate you've severed employment ties to the state.
Pro Tip: If expecting significant income in your departure year, run the numbers both ways—moving late December versus early January can mean 11 months less state taxable income. Consult a professional to optimize timing.
How NSKT Global Can Help with State Tax Obligations
NSKT Global specializes in helping Americans living abroad navigate complex state tax obligations and minimize state tax liability. Our comprehensive services address all aspects of state residency for tax purposes and expat state taxes.
We provide comprehensive state tax analysis by reviewing your former state's tax laws, determining whether you maintain filing obligations, analyzing domicile versus residency rules for your specific situation, and identifying potential state tax exposure before it becomes a problem.
Our strategic planning services include advising on steps to properly sever state tax residency, helping establish domicile in no-income-tax states, preparing declarations of non-residency, and documenting your foreign residence. We handle complete state tax return preparation including part-year resident returns for the year you moved abroad and nonresident state tax return filings if you have state-source income. We provide proper allocation of income between resident and non-resident periods.
We also provide state audit defense if your former state questions your residency status and offer resolution for unfiled state returns with penalty abatement negotiation. Our team specializes in problematic state issues including California domicile challenges, Virginia residency problems, and New York convenience of employer situations.
Whether you moved abroad recently or years ago, our expertise ensures you handle state tax obligations correctly while minimizing your tax burden and avoiding costly mistakes that trigger state audits or collection actions. As dedicated providers of expat tax services, we understand the unique challenges Americans face with state-level compliance.
Frequently Asked Questions
Q: I moved abroad 3 years ago and never filed state returns since. What should I do?
File the missing returns now. Prepare a part-year return for the year you left and any non-resident returns if you have state-source income. Better to file late than never. May face penalties but smaller if you come forward voluntarily. We help with catch-up state filing regularly.
Q: Can California really tax me if I haven't lived there in 5 years?
Yes, if they successfully argue you're still domiciled there. California uses domicile test, not physical presence. If you keep property, family, bank accounts, or other ties, they'll claim you're still resident. Need to formally sever all ties and document it to avoid California tax.
Q: Do I have to file a state return if I used Foreign Earned Income Exclusion?
Depends on state. Most states don't recognize FEIE and want tax on full income. Some states do recognize it. Check your specific state's rules. In general, federal FEIE doesn't eliminate state tax obligations. Professional expat tax filing assistance ensures compliance with your state's specific rules.
Q: I moved from Texas to Japan. Do I owe any state tax?
No. Texas has no income tax. You're done with state taxes forever (unless you move back to a different state). This is why moving to a no-income-tax state before going abroad is a smart strategy.
Q: My only US income is rental from a house in Oregon. Do I file there?
Yes. Rental income from Oregon property is Oregon-source income. You must file Oregon nonresident state tax return annually. Report rental income and expenses and pay Oregon tax on net rental income. You can't avoid this while owning property there.
